Thursday, 22 November 2012
Banking reform in deep crisis
Clearly there was a need after the disastrous credit build up of 2001-2008 to make some big changes to Central Bank policy making, Government Policy making and private bank regulations. All of which when you think about it was going to be messy as so much needed to be done so quickly.
As ever, the US come up with the simplest ideas - in this case the Volcker rule - to try and fix things quickly. And of course the UK, beladen with all-knowing bureaucrats, goes for the complex route.
So we ended up with the unhelpful Vickers report which did somethings but did not split the Investment and Retail banks up which would have made everything alot simpler.
Worse is Basel III and the meddling FSA. The latter is not helped by the Governments refusal to put the detailed meat on the Vickers bones - so they are left not sure what guidance to issue. Basel III meanwhile stipulate capital increases fro banks to allocate against products.
You may or may not have noticed that this has ended Investment banking as was. There are many markets that simply are not economic anymore - the amounts of capital allocated is too great to mean returns. As such only advisory businesses work and fixed income and equities, as well as come trading has simply been stopped. Hence the tens of thousands of redundancies in the City - RBS, UBS, Credit Suisse, Citi are all making five figure redundancies at the moment. Yet to come, but baked in now, will be the loss of support jobs in Legal and Accounting firms.
Bank don't know what products are going to work in such an environment of regulatory flux, as their staff are expensive they are sacking them. In a year or two perhaps they will figure out what to do and hire some back. Those who are left are on salary packages often a quarter of what they once were.
This is going to have a big impact on the UK economy - so big that it will delay any meaningful growth until after 2015. And it didn't need to happen - its the impact of bureaucratic imposition on the regulatory reform process.
Of course, no one will care and I expect many comments saying hooray or so what, because Bankers are not popular. They are very popular in the Treasury though - watch those corporate tax receipts fall and a big drop income taxes as bonus's go.